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f. 13th Month Pay i. Employees not Entitled HOUSE OF SARA LEE VS.

REY FACTS: The House of Sara Lee is engaged in the direct selling of a variety of product lines for men and women, including cosmetics, intimate apparels, perfumes, ready to wear clothes and other novelty items, through its various outlets nationwide. In the pursuit of its business, the petitioner engages and contracts with dealers to sell the aforementioned merchandise. Under existing company policy, the dealers must remit to the petitioner the proceeds of their sales within a designated credit period, which would either be 38 days for IGSs or 52 days for IBMs, counted from the day the said dealers acquired the merchandise from the petitioner. To discourage late remittances, the petitioner imposes a Credit Administration Charge, or simply, a penalty charge, on the value of the unremitted payment. Additionally, if the dealer concerned has overdue payments or is said to be in default, he or she cannot purchase additional products from the petitioner. Cynthia Rey, the Accounts Receivable Clerk and later Credit Administration Supervisor, was found to have violated the company policies pertaining to the unauthorized extension of credit periods, noncollection of remittances, nonimposition of penalty charges, authorizing purchases and giving of supervision fees despite non-remittance, etc. As a result, she was dismissed the respondent for breach of trust and confidence. Yanyan De Vera

ISSUES: Is she entitled to 13thmo pay? 14thor 15thmo pay? RULING: Not entitled to 13th, 14th, 15th. The award of 13monthpay and salary increases th month pay must be deleted. Respondent is not a rank-and-file employee and is, therefore, not entitled to thirteenth-month pay. The NLRC and the CA are correct in refusing to award 14th and 15th month pay as well as the monthly salary increase of 10 percent per year for two years based on her latest salary rate. The respondent must show that these benefits are due to her as a matter of right. The rule in these cases is, she who alleges, not she who denies, must prove. Mere allegations by the respondent do not suffice in the absence of proof supporting the same. With respect to salary increases in particular, the respondent must likewise show that she has a vested right to the same, such that her salary increases can be made a component in the computation of backwages. What is evident is that salary increases are a mere expectancy. They are by nature volatile and dependent on numerous variables, including the companys fiscal situation, the employees future performance on the job, or the employees continued stay in a position. In short, absent any proof, there is no vested right to salary increases.

PETROLEUM NLRC

SHIPPING

LIMITED

VS.

FACTS: Esso International Shipping (Bahamas) Co., Ltd., (Esso) through Page 1

Trans-Global Maritime Agency, Inc. (Trans-Global) hired Florello W. Tanchico (Tanchico) as First Assistant Engineer. In 1981, Tanchico became Chief Engineer. On 13 October 1992, Tanchico returned to the Philippines for a two-month vacation after completing his eight-month deployment. On 8 December 1992, Tanchico underwent the required standard medical examination prior to boarding the vessel. The medical examination revealed that Tanchico was suffering from Ischemic Heart Disease, Hypertensive CardioMuscular Disease and Diabetes Mellitus. Tanchico took medications for two months and a subsequent stress test showed a negative result. However,Esso no longer deployed Tanchico. Instead, Esso offered to pay him benefits under the Career Employment Incentive Plan. Tanchico accepted the offer. On 26 April 1993, Tanchico filed a complaint against Esso, Trans-Global and Malayan Insurance Co., Inc. (Malayan) before the Philippine Overseas Employment Administration (POEA) for illegal dismissal with claims for backwages, separation pay, disability and medical benefits and 13th month pay. In view of the enactment of Republic Act No. 8042 (RA 8042)[4] transferring to the National Labor Relations Commission (NLRC) the jurisdiction over money claims of overseas workers, the case was indorsed to the Arbitration Branch of the National Capital Region. In a Decision[5] dated 16 October 1996, Labor Arbiter Jose G. De Vera (Labor Arbiter De Vera) dismissed the complaint for lack of merit. Tanchico appealed to the NLRC.

ISSUE: Whether Tanchico is entitled to 13th month pay, disability benefits and attorneys fees. RULING: The Court of Appeals premised its grant of 13th month pay on its ruling that Tanchico was a regular employee. The Court of Appeals also ruled that petitioners are not exempt from the coverage of PD 851 which requires all employers to pay their employees a 13th month pay. We do not agree with the Court of Appeals. Again, Tanchico was a contractual, not a regular, employee. Further, PD 851 does not apply to seafarers. The WHEREAS clauses of PD 851 provides: WHEREAS, it is necessary to further protect the level of real wages from ravages of world-wide inflation; WHEREAS, there has been no increase in the legal minimum wage rates since 1970; WHEREAS, the Christmas season is an opportune time for society to show its concern for the plight of the working masses so they may properly celebrate Christmas and New Year. PD 851 contemplates the situation of land-based workers, and not of seafarers who generally earn more than domestic land-based workers. Tanchicos employment is governed by his Contract of Enlistment (Contract).[20] The Contract has been approved by the POEA in accordance with Title I, Book One of the Labor Code and the POEA Rules Governing Employment.[21] The coverage of the Contract includes Page 2

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Compensation, Overtime, Sundays and Holidays, Vacations, Living Allowance, Sickness, Injury and Death, Transportation and Travel Expense, Subsistence and Living Quarters. It does not provide for the payment of 13th month pay. The Contract of Employment,[22] which is the standard employment contract of the POEA, likewise does not provide for the payment of 13th month pay. In Coyoca v. NLRC which involves a claim for separation pay, this Court held: Furthermore, petitioners contract did not provide for separation benefits. In this connection, it is important to note that neither does POEA standard employment contract for Filipino seamen provide for such benefits. As a Filipino seaman, petitioner is governed by the Rules and Regulations Governing Overseas Employment and the said Rules do not provide for separation or termination pay. x x x[23]

assistance covered every December each year of not less than 100% of the basic salary. In the latter part of 1998, the parties started to re-negotiate for the fourth and fifth years of the CBA. The union filed a notice of strike on the ground of unfair labor practice for deadlock. DOLE assumed jurisdiction over the case and certified it to the NLRC for compulsory arbitration. The striking employees were ordered to return to work and management to accept them back under the same terms prior to the strike staged. Honda issued a memorandum of the new computation of the 13th month and 14th month pay to be granted to all its employees whereby the 31 long strikes shall be considered unworked days for purpose of computing the said benefits. The amount equivalent to of the employees basic salary shall be deducted from these bonuses, with a commitment that in the event that the strike is declared legal, Honda shall pay the amount. The respondent union opposed the prorated computation of bonuses. This issue was submitted to voluntary arbitration where it ruled that the companys implementation of the pro-rated computation is invalid. ISSUE: Whether or not the pro-rated computation of the 13th and 14th month pays and other bonuses in question is valid and lawful. RULING: The Court ruled that the prorated computation is invalid. The pro-rated computation of Honda as a company policy has not ripened into a company practice and it was the first time they implemented such practice. Page 3

Hence, in provision in his payment of 13th not entitled to the

the absence of any Contract governing the month pay, Tanchico is benefit.

ii. Basis for Computation HONDA PHILS. VS. SAMAHAN NG MALALAYANG MANGAGAWA SA HONDA FACTS: The case stems from the collective bargaining agreement between Honda and the respondent union that it granted the computation of 14th month pay as the same as 13th month pay. Honda continues the practice of granting financial Yanyan De Vera

The payment of the 13th month pay in full month payment by Honda has become an established practice. The length of time where it should be considered in practice is not being laid down by jurisprudence. The voluntary act of the employer cannot be unilaterally withdrawn without violating Article 100 of the Labor Code. The court also rules that the withdrawal of the benefit of paying a full month salary for 13th month pay shall constitute a violation of Article 100 of the Labor Code. iii. Bonus UNITED CMC TEXTILE UNION VS. VALENZUELA WORKERS

respondents may verify the correctness and/or validity of the individual claims and for the latter to present their objection, if any, to the Labor Arbiter of origin, prior to the execution of the decision. Petitioner filed with the NLRC a motion for execution of the decision in October, 1984. Pursuant to such motion, conferences were held by the parties before the respondent Labor Arbiter. However, these were stopped when CTMI filed an appeal with the NLRC stating that the decision of this Court in G.R. No. 68666 has become moot and academic by virtue of Our ruling in the case of National Federation of Sugar Workers Page 428 vs. Central Azucarera de la Carlota, et al. 2 to the effect that ,employers already paying the equivalent of the 13th month pay to their employees, such as Christmas bonus, are under no legal obligation to pay an additional 13th month pay prescribed under P.D. No. 851. Due to the appeal of CTMI, respondent Labor Arbiter refused to continue with the execution of the final order or decision in G.R. No. 58666 contending that it has become moot and academic. RULING: Petition is granted. The findings of the NLRC as stated in its decision 4 show that the claim is for Christmas bonus for the year 1978 only. It appears from the records that the employees of the respondent company had been paid their bonuses in accordance with the collective bargaining agreement, in addition to the 13th month pay, for the years 1979 and 1980. The Page 431 collective bargaining agreement in question took effect on November 1, 1978, 3 years after the promulgation of P.D. No. 851. If the Christmas bonus was included in the 13th month pay, then there would be no need Page 4

FACTS: Sometime in 1979, petitioner filed a complaint against Central Textile Mills, Inc. (CTMI, for brevity) at the Ministry of Labor and Employment for non-payment of Christmas bonus of the rank and file employees of said company as provided in Art. XI of the then existing collective bargaining agreement between petitioner and CTMI. To be paid to all employees on or before the beginning of the Christmas vacation. LA DECISION: Foregoing PREMISES CONSIDERED, we find that Sec. 1, Art XI of the CBA concluded between the parties dealing on the payment of Christmas Bonus is violated by the refusal of respondent Central Textile Mills, Inc. to pay the same despite demand by complainant United CMC Textile Workers Union. NLRC :affirmed the Labor Arbiter's decision with the modification that the complainant (petitioner herein) was ordered to furnish a copy of the computation list in order that Yanyan De Vera

for having a specific provision on Christmas bonus in the CBA. But it did provide for a bonus in graduated amounts depending on the length of service of the employee. The intention is clear therefore that the bonus provided in the CBA was meant to be in addition to the legal requirement. Moreover, why exclude the payment of the 1978 Christmas bonus and pay only the 1979-1980 bonus. The classification of the company's workers in the CBA according to their years of service supports the allegation that the reason for the payment of bonus was to give bigger reward to the senior employees a purpose which is not found in P.D. 851. A bonus under the CBA is an obligation created by the contract between the management and workers while the 13th month pay is mandated by the law (P.D. 851). Likewise We find no merit in respondent's allegations that the applicability of the said La Carlota ruling to the case at bar is explicitly recognized by herein petitioner. A cursory reading of the CBA signed on November 2, 1983 5shows that petitioner Union recognizes only the application of the La Carlota doctrine in so far as it had agreed to the deletion of the provision on payment of Christmas bonus in the new CBA of 1983 without necessarily giving up their claim for their 1978 bonus under their former collective bargaining agreement. PRODUCERS BANK VS. NLRC FACTS: Petitioner was placed by Central Bank of the Philippines (Bangko Sentral ng Pilipinas) under a conservator for the purpose of protecting its assets. When the respondents ought to implement the CBA Yanyan De Vera

(Sec. 1, Art. 11) regarding the retirement plan and pertaining to uniform allowance, the acting conservator of the petition expressed objection resulting an impasse between the petitioner bank and respondent union. The deadlock continued for at least six months. The private respondent, to resolve the issue filed a case against petitioner for unfair labor practice and flagrant violation of the CBA. The Labor Arbiter dismissed the petition. NLRC reversed the findings and ordered the implementation of the CBA. RULING: An employer cannot be forced to distribute bonuses which it can no longer afford to pay, a bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to the success of the employers business and made possible the realization of profile. It is an act of generosity and is a management prerogative, given in addition to what is ordinarily received by or strictly due the recipient. Thus, it is not a demandable and enforceable obligation, except when it is made part of the wage, salary or compensation of the employee. The conservator was justified in reducing the mid-year and Christmas bonuses of petitioners employees. Ultimately, it is to the employees advantage that the conservatorship achieve its purposes otherwise, the closure of the company would result in the employees losing their jobs. PD 851 requires all employees to pay their employees a basic salary of not more than P1, 000 at 13th monthly pay. However, Page 5

employees already paying their employees a 13th month pay are not covered by the law. The term equivalent shall be constructed to include Christmas bonus, mid year bonus, cash bonuses and other payments amounting to not less than 1 /12 of the basic salary. The intention was to grant relief to those not actually paid a bonus, by whatever name called. Thus, petitioner is justified in crediting the mid year bonus and Christmas bones as part of the 13th month pay. The divisor used by petitioner in arriving at the employees daily rate for the purpose of computing salary related benefits is 314 days. This finding was not disputed by the NLRC. However, the divisor was for the sole purpose of increasing the employees overtime pay and was not meant to replace the use of 314 as the divisor in the computation of the daily rate for salary related benefits. a. No Work No Pay ESCARIO vs. NLRC FACTS: The petitioners were among the regular employees of respondent, a corporation engaged in manufacturing and selling food seasoning. All the officers and some 200 members of the Union walked out of PINAs premises and proceeded to the barangay office to show support for Juanito Caete, an officer of the Union charged with oral defamation by a PINAs personnel manager secretary. [3] It appears that the proceedings in the barangay resulted in a settlement, and the officers and members of the Union all returned to work thereafter. As a result of the walkout, PINA preventively suspended all officers of the Union. PINA terminated the officers of the Union after a month. PINA filed a complaint. Labor Arbiter: was an illegal Yanyan De Vera

walkout constituting ULP; and that all the Unions officers, except Caete, had thereby lost their employment.The Union filed a notice of strike, claiming that PINA was guilty of union busting through the constructive dismissal of its officers. PINA retaliated by charging the petitioners with ULP and abandonment of work, stating that they had violated provisions on strike of the collective bargaining agreement (CBA). NLRC issued a TRO, enjoining the Unions officers and members to cease and desist from barricading and obstructing the entrance to and exit from PINAs premises . NLRC granted the writ of preliminary injunction.[10]Labor Arbiter: rendered declaring the subject strike to be illegal. CA affirmed the NLRC. ISSUE: The petitioners posit that they are entitled to full backwages from the date of dismissal until the date of actual reinstatement due to their not being found to have abandoned their jobs. They insist that the CA decided the question in a manner contrary to law and jurisprudence. RULING: Petitioners not entitled to backwages despite their reinstatement: A fair days wage for a fair days labor The petitioners argue that the finding of no abandonment equated to a finding of illegal dismissal in their favor. Hence, they were entitled to full backwages. The petitioners sustained. argument cannot be

The petitioners participation in the illegal strike was precisely what prompted PINA to file a complaint to declare them, as striking employees, to have lost their employment status. However, the NLRC ultimately ordered their reinstatement after finding that they had not abandoned their work by joining the illegal strike. They were Page 6

thus entitled only to reinstatement, regardless of whether or not the strike was the consequence of the employers ULP,[19] considering that a strike was not a renunciation of the employment relation.[20] As a general rule, backwages are granted to indemnify a dismissed employee for his loss of earnings during the whole period that he is out of his job. Considering that an illegally dismissed employee is not deemed to have left his employment, he is entitled to all the rights and privileges that accrue to him from the employment. [ The grant of backwages to him is in furtherance and effectuation of the public objectives of the Labor Code, and is in the nature of a command to the employer to make a public reparation for his illegal dismissal of the employee in violation of the Labor Code.[ That backwages are not granted to employees participating in an illegal strike simply accords with the reality that they do not render work for the employer during the period of the illegal strike. According to G&S Transport Corporation v. Infante: With respect to backwages, the principle of a fair days wage for a fair days labor remains as the basic factor in determining the award thereof. If there is no work performed by the employee there can be no wage or pay unless, of course, the laborer was able, willing and ready to work but was illegally locked out, suspended or dismissed or otherwise illegally prevented from working. xxx In Philippine Marine Officers Guild v. Compaia Maritima, as affirmed in Philippine Diamond Hotel and Resort v. Manila Diamond Hotel Employees Union, the Court stressed that for this exception to apply, it is required that the strike be legal, a situation that does not obtain in the case at bar. The petitioners herein do not deny their participation in the June 15, 1993 strike. As such, they did not suffer any loss of earnings during their absence from work. Their reinstatement sans backwages is in order, Yanyan De Vera

to conform to the policy of a fair days wage for a fair days labor. Under the principle of a fair days wage for a fair days labor, the petitioners were not entitled to the wages during the period of the strike (even if the strike might be legal), because they performed no work during the strike. Verily, it was neither fair nor just that the dismissed employees should litigate against their employer on the latters time.[25] Thus, the Court deleted the award of backwages and held that the striking workers were entitled only to reinstatement in Philippine Diamond Hotel and Resort, Inc. (Manila Diamond Hotel) v. Manila Diamond Hotel Employees Union,[26] considering that the striking employees did not render work for the employer during the strike. b. Wages, Salary, Facilities,

Supplement MILLARES vs. NLRC FACTS: Petitioners numbering one hundred sixteen occupied the positions of Technical Staff, Unit Manager, Section Manager, Department Manager, Division Manager and Vice President in the mill site of respondent Paper Industries Corporation of the Philippines (PICOP) in Bislig, Surigao del Sur. In 1992 PICOP suffered a major financial setback allegedly brought about by the joint impact of restrictive government regulations on logging and the economic crisis. To avert further losses, it undertook a retrenchment program and terminated the services of petitioners. Accordingly, petitioners received separation pay computed at the rate of one (1) month basic pay for every year of service. Page 7

Believing however that the allowances they allegedly regularly received on a monthly basis during their employment should have been included in the computation thereof they lodged a complaint for separation pay differentials. ISSUE: Whether the allowances are included in the definition of "facilities" in Art. 97, par. (f), of the Labor Code, being necessary and indispensable for their existence and subsistence. RULING: The allowances are not part of the wages of the employees. Wage is defined in letter (f) as the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee. When an employer customarily furnishes his employee board, lodging or other facilities, the fair and reasonable value thereof, as determined by the Secretary of Labor and Employment, is included in "wage." Customary is founded on longestablished and constant practice connoting regularity. The receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary because the nature of the grant is a factor worth considering.

The court agrees with the observation of the Office of the Solicitor General that the subject allowances were temporarily, not regularly, received by petitioners. Although it is quite easy to comprehend "board" and "lodging," it is not so with "facilities." Thus Sec. 5, Rule VII, Book III, of the Rules Implementing the Labor Code gives meaning to the term as including articles or services for the benefit of the employee or his family but excluding tools of the trade or articles or service primarily for the benefit of the employer or necessary to the conduct of the employer's business. In determining whether a privilege is a facility, the criterion is not so much its kind but its purpose. Revenue Audit Memo Order No. 1-87 pertinently provides 3.2 transportation, representation or entertainment expenses shall not constitute taxable compensation if: (a) It is for necessary travelling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade or business of the employer, and (b) The employee is required to, and does, make an accounting/liquidation for such expense in accordance with the specific requirements of substantiation for such category or expense.Board and lodging allowances furnished to an employee not in excess of the latter's needs and given free of charge, constitute income to the latter except if such allowances or benefits are furnished to the employee for the convenience of the employer and as necessary incident to proper performance of his duties in which case such benefits or allowances do not constitute taxable income. The Secretary of Labor and Employment under Sec. 6, Rule VII, Book III, of the Page 8

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Rules Implementing the Labor Code may from time to time fix in appropriate issuances the "fair and reasonable value of board, lodging and other facilities customarily furnished by an employer to his employees." Petitioners' allowances do not represent such fair and reasonable value as determined by the proper authority simply because the Staff/Manager's allowance and transportation allowance were amounts given by respondent company in lieu of actual provisions for housing and transportation needs whereas the Bislig allowance was given in consideration of being assigned to the hostile environment then prevailing in Bislig. The inevitable conclusion is that subject allowances did not form part of petitioners' wages.

SLL INTERNATIONAL CABLES SPECIALIST AND SONNY L. LAGON, VS. NLRC

FACTS: Respondent employees alleged underpayment of their wages. Petitioner employer claimed that the cost of food and lodging provided by petitioner to the respondent employees should be included in the computation of the wages received by respondents. RULING: The Court makes a distinction between facilities and supplements. Supplements constitute extra remuneration or special privileges or benefits given to or received by the laborers over and above their ordinary earnings or wages. Facilities, on the other hand, are items of expense necessary for the laborers and his familys existence and Yanyan De Vera

subsistence so that by express provision of law, they form part of the wage and when furnished by the employer are deductible therefrom, since if they are not so furnished, the laborer would spend and pay for them just the same. In short, the benefit or privilege given to the employee which constitutes an extra remuneration above and over his basic or ordinary earning or wage is supplement; and when said benefit or privilege is part of the laborers basic wages, it is a facility. The distinction lies not so much in the kind of benefit or item (food, lodging, bonus or sick leave) given, but in the purpose for which it is given. In the case at bench, the items provided were given freely by petitioner employer for the purpose of maintaining the efficiency and health of its workers while they were working at their respective projects. Thus, the Court is of the view that the food and lodging, or the electricity and water allegedly consumed by respondents in this case were not facilities but supplements which should not be included in the computation of wages received by respondent employees.

i. Bonus included/not demandable obligation

included;

METRO TRANSIT ORGANIZATION VS. NLRC

In this Petition for Certiorari, petitioner Metro Transit Organization, Inc. ("Metro") asks us to set aside the Decision and Resolution of the National Labor Relations Commission ("NLRC") dated 30 March and 22 June 1994 respectively in NLRC-NCRCA No. 000042-92 ordering it to pay its Page 9

supervisory employees amounts representing (i) a demanded wage increase based on company practice and (ii) a correction or adjustment of an underpayment of an annual wage increase granted in the collective bargaining agreement (CBA) between Metro and herein private respondent Supervisory Employees Association Metro ("SEAM"). Petitioner Metro is the operator and manager of the Light Railway Transit System in Metro Manila. It employs close to 1,000 rank-and-file and over 200 supervisory employees. Private respondent SEAM is a union composed of supervisory employees of petitioner Metro. In May 1989, SEAM was certified as the sole bargaining unit for the supervisory employees of Metro. On 1 December 1989, the first collective bargaining agreement between petitioner Metro and private respondent SEAM took effect. 1 Prior to December 1989, Metro had a CBA only with its rank-and-file employees. During the period when no CBA governed the terms and conditions of employment between Metro and its supervisory employees, whenever rankand-file employees were paid a statutorily mandated salary increase, supervisory employees were, as a matter of practice, also paid the same amount plus P50.00. On 17 April 1989, Metro paid its rank-andfile employees a salary increase of P500.00 per month in accordance with the terms of their CBA. 2 Metro, however, did not extend a corresponding salary increase to its supervisory employees. On 1 December 1989, Metro, in compliance with its CBA with SEAM, paid Yanyan De Vera

its supervisory employees a salary increase of P800.00 per month. On 17 April 1990, Metro paid its rank-andfile and supervisory employees a P600.00 monthly increase. The payment thus made to rank-and-file employees was in compliance with the second year salary increase provided in their CBA. On the other hand, the P600.00 per month paid to supervisory employees was advanced from their second year salary increase, provided in their CBA, of P1,000.00 per month effective 1 December 1990. On 1 December 1990, Metro paid its supervisory employees the remaining balance of P400.00 per month in addition to the P600.00 a month it had earlier started to pay. The third year salary increases due rankand-file and supervisory employees were paid on 17 April and 1 December 1991, respectively, as scheduled in their corresponding CBAs. On 24 March 1992, private respondent SEAM filed a Notice of Strike before the National Conciliation and Mediation Board ("NCMB") charging petitioner Metro with (a) discrimination in terms of wages; (b) underpayment of salary increase per CBA for 1990 and/or adjustment of salaries for correction of disparity/inequity in pay with rank-and-file employees and (c) harassment and demotion of union officers. Conciliation and mediation efforts before the NCMB failed RULING: In respect of the issue of existence of a wage distortion, the Court finds and so holds that a wage distortion did occur when the salaries of rank-andfile employees were increased by P500.00 per month on 17 April 1989 as stipulated in their CBA and no corresponding Page 10

increase was paid to the supervisory employees. This fact was admitted by Atty. Virgilio C. Abejo, counsel for petitioner Metro, during the oral hearing and Metro is bound by that admission. In addition, Atty. Abejo explained that his client, as a matter of practice, granted its supervisory employees a salary increase (and a premium) whenever it paid its rankand-file employees a salary increase. The defense of management prerogative or discretion invoked by petitioner Metro in asserting that it is not obligated to grant supervisory employees a salary increase whenever rank-and-file employee are granted an increase is, in this case, unavailing. Basically, Metro's argument is that such increase was merely a bonus given to supervisory employees. A "bonus" is an amount granted and paid to an employee for his industry and loyalty which contributed to the success of the employer's business and made possible the realization of profits. It is something given in addition to what is ordinarily received by or strictly due to the recipient. The general rule is that a bonus is a gratuity or an act of liberality which the recipient has no right to demand as a matter of right. A bonus, however, is a demandable or enforceable obligation when it is made part of the wage or salary or compensation of the employee. Whether or not a bonus forms part of wages depends upon the circumstances and conditions for its payment. If it is additional compensation which the employer promised and agreed to give without any conditions imposed for its payment, such as success of business or Yanyan De Vera

greater production or output, then it is part of the wage. But if it is paid only if profits are realized or if a certain level of productivity is achieved, it can not be considered part of the wage. Where it is not payable to all but only to some employees and only when their labor becomes more efficient or more productive, it is only an inducement for efficiency, a prize therefor, not a part of the wage. 10 In the case at bar, the increase of P550.00 sought by private respondent SEAM was neither an inducement nor was it contingent on (a) the success of the business of petitioner Metro; or (b) the increased production or work output of the company or (c) the realization of profits. The demand for this increase was based on a company practice, admitted by Metro, of granting a salary increase (and a premium) to supervisory employees whenever rankand-file employees were granted a salary increase. That those increases were precisely designed to correct or minimize the wage distortion effects of increases given to rank-and-file employees (under their CBA or under Wage Orders), highlights the fact that those increases were part of the wage structure of supervisory employees. The demanded increase therefore is not a bonus that is generally not demandable as a matter of right. The demanded increase, in this instance, is an enforceable obligation so far as the supervisory employees of Metro are concerned. We conclude that the supervisory employees, who then (i.e., on 17 April 1989) had, unlike the rank-and-file employees, no CBA governing the terms and conditions of their employment, had the right to rely on the company practice of Page 11

unilaterally correcting the wage distortion effects of a salary increase given to the rank-and-file employees, by giving the supervisory employees a corresponding salary increase plus a premium. For reasons, however, shortly to be stated in the disposition of the second issue, we hold that the P550.00 increase is demandable by SEAM only in respect of the period beginning 17 April 1989 and ending on 30 November 1989. It is true enough that, in the present case, the wage distortion to be corrected by the award of P550.00 increase for supervisory employees beginning 17 April 1989, was due to the time gap between the effectivity date (17 April 1989) of the increase of P500.00 per month given to rank-and-file employees under their CBA and the effectivity date (1 December 1989) of the P800.00 increase given to supervisory employees under their own CBA. It is also true that had the P800.00 increase to supervisory employees been made retroactive to 17 April 1989 by an appropriate synchronizing provision in the Metro-SEAM CBA, no wage distortion would have arisen. The fact, however, remains that Metro and SEAM did not agree upon such remedy in their CBA and that the CBA increase given to rank-andfile employees did produce a distortion effect by obliterating or drastically reducing the previous gap between the salary rates of rank-and-file and supervisory employees. The point to be stressed is that considering the prior practice of petitioner Metro, its supervisory employees had the right to expect rectification of that distortion.

Eastern Telecoms Philippines Eastern Telecoms Employees Union

vs.

FACTS: Eastern Telecommunications Phils., Inc. (ETPI) is a corporation engaged in the business of providing telecommunications facilities, particularly leasing international date lines or circuits, regular landlines, internet and data services, employing approximately 400 employees. Eastern Telecoms Employees Union (ETEU) is the certified exclusive bargaining agent of the companys rank and file employees with a strong following of 147 regular members. It has an existing CBA with the company to expire in the year 2004 with a Side Agreement. In essence, the labor dispute was a spin-off of the companys plan to defer payment of the 2003 14th, 15th and 16thmonth bonuses sometime in April 2004. The companys main ground in postponing the payment of bonuses is due to allege continuing deterioration of companys financial position which started in the year 2000. However, ETPI while postponing payment of bonuses sometime in April 2004, such payment would also be subject to availability of funds. ISSUES: whether the members of ETEU are entitled to the payment of 14th, 15th and 16th month bonuses for the year 2003 and 14th month bonus for year 2004. RULING: No merit in the petition. From a legal point of view, a bonus is a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right. The grant of a bonus is basically a management prerogative which cannot be forced upon the employer who may not be obliged to assume the Page 12

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onerous burden of granting bonuses or other benefits aside from the employees basic salaries or wages. A bonus, however, becomes a demandable or enforceable obligation when it is made part of the wage or salary or compensation of the employee. Particularly instructive is the ruling of the Court in Metro Transit Organization, Inc. v. National Labor Relations Commission, [ where it was written: Whether or not a bonus forms part of wages depends upon the circumstances and conditions for its payment. If it is additional compensation which the employer promised and agreed to give without any conditions imposed for its payment, such as success of business or greater production or output, then it is part of the wage. But if it is paid only if profits are realized or if a certain level of productivity is achieved, it cannot be considered part of the wage. Where it is not payable to all but only to some employees and only when their labor becomes more efficient or more productive, it is only an inducement for efficiency, a prize therefore, not a part of the wage. The consequential question that needs to be settled, therefore, is whether the subject bonuses are demandable or not. Stated differently, can these bonuses be considered part of the wage, salary or compensation making them enforceable obligations? YES! In the case at bench, it is indubitable that ETPI and ETEU agreed on the inclusion of a provision for the grant of 14th, 15th and 16th month bonuses in the 1998-2001 CBA Side Agreement, as well as in the 20012004 CBA Side Agreement,which was signed on September 3, 2001. A reading of the above provision reveals that the same provides for the giving of 14th, 15th and 16th month bonuses without qualification. The wording of the provision does not allow any other interpretation. There were no Yanyan De Vera

conditions specified in the CBA Side Agreements for the grant of the benefits contrary to the claim of ETPI that the same is justified only when there are profits earned by the company. Terse and clear, the said provision does not state that the subject bonuses shall be made to depend on the ETPIs financial standing or that their payment was contingent upon the realization of profits. Neither does it state that if the company derives no profits, no bonuses are to be given to the employees. In fine, the payment of these bonuses was not related to the profitability of business operations. The records are also bereft of any showing that the ETPI made it clear before or during the execution of the Side Agreements that the bonuses shall be subject to any condition. Indeed, if ETPI and ETEU intended that the subject bonuses would be dependent on the company earnings, such intention should have been expressly declared in the Side Agreements or the bonus provision should have been deleted altogether. In the absence of any proof that ETPIs consent was vitiated by fraud, mistake or duress, it is presumed that it entered into the Side Agreements voluntarily, that it had full knowledge of the contents thereof and that it was aware of its commitment under the contract. Verily, by virtue of its incorporation in the CBA Side Agreements, the grant of 14th, 15th and 16th month bonuses has become more than just an act of generosity on the part of ETPI but a contractual obligation it has undertaken. Moreover, the continuous conferment of bonuses by ETPI to the union members from 1998 to 2002 by virtue of the Side Agreements evidently negates its argument that the giving of the subject bonuses is a management prerogative. From the foregoing, ETPI cannot insist on business losses as a basis for disregarding its undertaking. It is manifestly clear that Page 13

although it incurred business losses of 149,068,063.00 in the year 2000, it continued to distribute 14th, 15th and 16th month bonuses for said year. Notwithstanding such huge losses, ETPI entered into the 2001-2004 CBA Side Agreement on September 3, 2001whereby it contracted to grant the subject bonuses to ETEU in no uncertain terms. ETPI continued to sustain losses for the succeeding years of 2001 and 2002 in the amounts of 348,783,013.00 and 315,474,444.00, respectively. Still and all, this did not deter it from honoring the bonus provision in the Side Agreement as it continued to give the subject bonuses to each of the union members in 2001 and 2002 despite its alleged precarious financial condition. Parenthetically, it must be emphasized that ETPI even agreed to the payment of the 14th, 15th and 16th month bonuses for 2003 although it opted to defer the actual grant in April 2004. All given, business losses could not be cited as grounds for ETPI to repudiate its obligation under the 2001-2004 CBA Side Agreement. The Court finds no merit in ETPIs contention that the bonus provision confirms the grant of the subject bonuses only on a single instance because if this is so, the parties should have included such limitation in the agreement. Nowhere in the Side Agreement does it say that the subject bonuses shall be conferred once during the year the Side Agreement was signed. The Court quotes with approval the observation of the CA in this regard: ETPI argues that assuming the bonus provision in the Side Agreement of the 2001-2004 CBA entitles the union members to the subject bonuses, it is merely in the nature of a one-time grant and not intended to cover the entire term of the CBA. The contention is untenable. The bonus provision in question is exactly the same as that contained in the Side Agreement of the 1998-2001 CBA and Yanyan De Vera

there is no denying that from 1998 to 2001, ETPI granted the subject bonuses for each of those years. Thus, ETPI may not now claim that the bonus provision in the Side Agreement of the 2001-2004 CBA is only a one-time grant.[18] ETPI then argues that even if it is contractually bound to distribute the subject bonuses to ETEU members under the Side Agreements, its current financial difficulties should have released it from the obligatory force of said contract invoking Article 1267 of the Civil Code. Said provision declares: Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. The Court is not persuaded. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in absolutely exceptional changes of circumstances that equity demands [19] assistance for the debtor. In the case at bench, the Court determines that ETPIs claimed depressed financial state will not release it from the binding effect of the 2001-2004 CBA Side Agreement. ETPI appears to be well aware of its deteriorating financial condition when it entered into the 2001-2004 CBA Side Agreement with ETEU and obliged itself to pay bonuses to the members of ETEU. Considering that ETPI had been continuously suffering huge losses from 2000 to 2002, its business losses in the year 2003 were not exactly unforeseen or unexpected. Consequently, it cannot be said that the difficulty in complying with its obligation under the Side Agreement was manifestly beyond the contemplation of the parties. Besides, as held in Central Bank of the Philippines v. Court of Page 14

Appeals,[20] mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation. Contracts, once perfected, are binding between the contracting parties. Obligations arising therefrom have the force of law and should be complied with in good faith. ETPI cannot renege from the obligation it has freely assumed when it signed the 20012004 CBA Side Agreement. Granting arguendo that the CBA Side Agreement does not contractually bind petitioner ETPI to give the subject bonuses, nevertheless, the Court finds that its act of granting the same has become an established company practice such that it has virtually become part of the employees salary or wage. A bonus may be granted on equitable consideration when the giving of such bonus has been the companys long and regular practice. In Philippine Appliance Corporation v. Court of Appeals,[21] it was pronounced: To be considered a regular practice, however, the giving of the bonus should have been done over a long period of time, and must be shown to have been consistent and deliberate. The test or rationale of this rule on long practice requires an indubitable showing that the employer agreed to continue giving the benefits knowing fully well that said employees are not covered by the law requiring payment thereof. The records show that ETPI, aside from complying with the regular 13th month bonus, has been further giving its employees14th month bonus every April as well as 15th and 16th month bonuses every December of the year, without fail, from 1975 to 2002 or for 27 years whether it earned profits or not. The considerable length of time ETPI has been giving the special grants to its employees indicates a unilateral and voluntary act on its part to continue giving said benefits knowing that such act was not required by law. Yanyan De Vera

Accordingly, a company practice in favor of the employees has been established and the payments made by ETPI pursuant thereto ripened into benefits enjoyed by the employees. The giving of the subject bonuses cannot be peremptorily withdrawn by ETPI without violating Article 100 of the Labor Code: Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation of this Code. The rule is settled that any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the employer. The principle of non-diminution of benefits is founded on the constitutional mandate to protect the rights of workers and to promote their welfare and to afford labor full protection.[22] Interestingly, ETPI never presented countervailing evidence to refute ETEUs claim that the company has been continuously paying bonuses since 1975 up to 2002 regardless of its financial state. Its failure to controvert the allegation, when it had the opportunity and resources to do so, works in favor of ETEU. Time and again, it has been held that should doubts exist between the evidence presented by the employer and the employee, the scales of justice must be tilted in favor of the latter. ii. Sales Commissions PHILIPPINE DUPLICATORS INC. NLRC vs.

FACTS: Petitioner Corporation pays its salesmen a small fixed or guaranteed wage; the greater part of the latters wages Page 15

or salaries being composed of the sales or incentive commissions earned on actual sales of duplicating machines closed by them. Thus the sales commissions received for every duplicating machine sold constituted part of the basic compensation or remuneration of the salesmen of the Philippine Duplicators for doing their job. The Labor Arbiter directed Petitioner Duplicators to pay 13th month pay to private respondent employees computed on the basis of their fixed wages plus sales commission. Sec. 4 of the Supplementary Rules and Regulations Implementing PD No. 851 (Revised Guidelines Implementing 13th Month Pay) provides that overtime pay, earning and other remuneration which are not part of the basic salary shall not be included in the computation of the 13th month pay. Petitioner Corporation contends that their sales commission should not be included in the computation of the 13th month pay invoking the consolidated cases of BoieTakeda Chemicals, Inc. vs Hon. Dionisio dela Serna and Philippine Fuji Xerox Corp. vs Hon. Crecencio Trajano, were the socalled commissions of medical representatives of Boie-Takeda Chemicals and rank-and-file employees of Fuji Xerox Co. were not included in the term basic salary in computing the 13th month pay. ISSUE: WON sales commissions comprising a pre-determined percent of the selling price of the goods are included in the computation of the 13th month pay. RULING: Yes. These commission which are an integral part of the basic salary structure of the Philippine Duplicators employees salesmen, are not overtime payments, nor profit-sharing payments nor any other fringe benefit. Thus, salesmens commissions comprising a pre-determined Yanyan De Vera

percent of the selling price of the goods were properly included in the term basic salary for purposes of computing the 13th month pay. Commissions of medical representatives of Boie-Takeda Chemicals and rank-and-file employees of Fuji Xerox Co. were not included in the term basic salary because these were paid as productivity bonuses which is not included in the computation of 13th month pay.

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